Archive - Dec 16, 2015 - Story

Someone forgot to give the banks the memo that the Fed's first rate hike since 2006 was supposed to, at least on paper, benefit the savers of America and not so much the, well, banks.. Because the ink hadn't even dried on the Fed's statement and one after another banks revealed that they would promptly boost their Prime lending rate from the current benchmark of 3.25% to the new Fed Funds-implied prime rate of 3.50%.

Update: The SEC Folds - SEC PERMITS TEMPORARY SUSPENSION OF THIRD AVENUE REDEMPTIONS, WILL BE SUBJECT TO ONGOING SEC OVERSIGHT

HYG, the now infamous high-yield bond ETF, had an "ok" day, rallying along with everything else post-Fed. However, shortly after the close, it started to fade quickly as SEC "expressed concerns" about Third Avenue's plan for liquidation.

At 6 p.m. local time in Buenos Aires, new FinMin Alfonso Prat-Gay will announce the end of currency controls in Argentina, ushering in a new era and a sharply weaker peso as the official and black market rates converge. 

"The United States and our partners are not seeking so-called regime change [and] there is no policy of the United States, per se, to isolate Russia."  

The continued misuse of capital and continued erroneous monetary policies have instigated not only the recent downturn but actually 30 years of an insidious slow moving infection that has destroyed the American legacy. “Recessions” should be embraced and utilized to clear the “excesses” that accrue in the economic system during the first half of the economic growth cycle. Trying to delay the inevitable, only makes the inevitable that much worse in the end.

While The Fed is confidently rising rates, the market is signalling its belief that this is a policy error. Not only are longer-dated bond yields lower but short-term money-market expectations for January now see a higher chance of a rate-cut, than a rate-hike.

“I think this interest rate hike is too late. This economy is closer to falling over than it is to going up. I think there’s a high probability that we’re looking at a recession in the next twelve months."

While Yellen still speaks in her historic "first rate hike in years" press conference, the sellside has shares its kneejerk reaction to the Fed's announcement, and as Citi notes, "It’s calm on the floor considering the first rate hike in years. More attention on WTI crude, which remains 4% lower to 35.80 after DOE inventory build."

Perhaps even more important than the actual rate hike announcement, the one statement the market was particularly focused on was the Fed's "implementation note", which lays out the Fed's thought process on how it will actually raise rates in order to maintain the Fed Funds in the 0.25%-0.50% range. What it reveals is that in addition to removing the daily limit on aggregate borrowings through its overnight reverse repurchase facility, previously set at $300 billion (recall that according to Citi, the Fed may need to drain up to $1 trillion in excess liquidity to effect the 25 bps hike), it will have a per counterparty limit of $30 billion per day, which may or may not be enough.

Stocks were not impressed at all out of the gate but once Janet started talking, the algos lifted them to the highs (and of course gold was whacked). Crude oil was dumped, along with "sell the news" USDollar longs. Bonds were well bid at the long-end...

In her first post-rate-hike press conference, Janet Yellen is about to go to extreme lengths to explain just how dovishly bullish raising interest rates is, despite leaving the Fed Funds forecast unchanged since September (i.,e. not dovish). We look forward to her explaining why she is raising rates now - as opposed to September - as economic data has nosedived and the market has done a significant job on contracting credit already. We also look forward to her explaining how, if rate hikes on the path to normalization are so awesome, why is the willingness to do it so low?

"When the Fed moves next will depend importantly on how inflation evolves. The Fed’s preferred measure of inflation has run below its 2% objective for more than three years. The central bank focused extra attention on the inflation outlook in its statement, saying it would “carefully monitor” actual and expected progress toward the goal. This point implied the Fed will be reluctant to raise rates again unless it sees inflation actually moving up. For now, officials said they were “reasonably confident” inflation would rise."

At 2 p.m. EST, the only thing the financial world will care about and discuss will be the Fed's [first rate hike in 9 years|epic disappointment]. So for those who still haven't made up their mind about what the Fed's [dovish|non-dovish] rate hike means, here is all you need to know.